Deval Patrick's Racino Problem

Why Massachusetts pols are addicted to gambling.

Christopher Caldwell

August 16, 2010, Vol. 15, No. 45

Boston

Like his friend Barack Obama, Massachusetts governor Deval Patrick campaigned with dire warnings of major crisis and then, once in office, decided he felt like thinking about something else. In Obama’s case, of course, this involved leaving to one side the biggest financial crisis in history in order to pursue a national health care plan. In Patrick’s case, it meant transforming the Athens of America into the Atlantic City of New England. Elected in 2006, Patrick aimed to open up the Bay State to what he called “destination casinos.” Unlike the president, he failed. Like the president, he is discovering that the issue has become an albatross that will flap alongside him to the end of his term.

Patrick’s plan was for Massachusetts to cover a $1.3 billion budget shortfall by selling three gambling licenses at $200 million apiece, and then taxing the take at 27 percent. The idea was popular in the abstract until voters began to educate themselves on the economics of it. When you factor in the damage to competing businesses (from restaurants to theaters to sports stadiums), the cost of infrastructure and law enforcement, and the steep toll of gambling addiction and its treatment, gambling takes much more out of an economy than it puts in—about three times as much, according to the economist Earl Grinols.

So far, so Obama-esque. But, unlike the president, Patrick was not able to push his plan through. Sal DiMasi, then the speaker of the Massachusetts house, laid out the numbers, and the legislature killed the bill—really killed it, by a vote of 108-46.

A week ago, something strange happened. On the very last day of the legislature’s final session, DiMasi’s successor as speaker, Robert DeLeo, presented Patrick with a bill that included everything he had fought so hard for two years before—all three super-casinos. Slightly lower licensing fees would be compensated for with new tax levels of 25 and 40 percent, permitting Patrick to make the same promise (equally dubious) of $400 million a year in new revenue. Patrick had been pummeled in the polls for his love affair with casinos. They had nearly (and may yet) cost him his political career. So what did he do when his close ally and friend laid the gift in his lap?

He refused to sign it. Patrick sent the bill back to the legislature amended (per gubernatorial prerogative) to show the kind of bill he would have signed, adding an elaborate schedule of affirmative-action set-asides for minorities, women, and the disabled, broken down in stages to apply to design and architectural jobs, construction jobs, and permanent jobs. But this was a mere good-faith gesture to his troops. The legislature has adjourned. A newly elected legislature is scheduled to come into session in January.

This was a bizarre outcome. The vote in the house was 115-36, which is veto-proof, and had the support of both Democratic and Republican leaders. The vote in the senate was 25-15, which was 2 votes away from veto-proof. A massive increase in gambling has been the main cause of Patrick’s short life in electoral politics. (He headed the Justice Department’s Civil Rights Division under Bill Clinton.) The legislature passes the massive increase in gambling by majorities so overwhelming that it doesn’t actually need the governor’s signature at all (two votes in the senate being easy enough to flip). And no new gambling at all results.

The governor’s explanation was that the bill contained something he hadn’t asked for—“racinos.” The state has four dying racetracks. DeLeo’s father worked his whole life at one of them, Suffolk Downs, down the street from the Winthrop district he represents. (Winthrop is the pretty peninsula full of double-deckers and lace-curtain-Irish mansions that you see when your plane is taxiing at Logan airport.) DeLeo’s idea is to fill these places up with slot machines. This, he thinks, will produce “jobs.” Patrick has two objections to racinos: First, they would produce enough competition to render his beloved “destination casinos” unprofitable. And second, although he puts it rather more delicately, people who play the high-stakes table at a “destination casino” don’t get addicted and do all those horrible things you see on the news shows the way people who gamble at the Wonderland dog-track would.

It is this distinction between working-class and upper-class gambling that most Massachusetts pundits seized on when they sought to explain the ostensible breach between Patrick and DeLeo. The split in Massachusetts politics is one not of party, but of class. While Democrats still hold a 144-16 advantage in the state house and send a liberal delegation to Washington, they have lost their hold on the public. They still outnumber Republicans 3-to-1 in the state, but a majority—a majority—of voters are independents. Patrick’s coalition is usually described as made up of liberals and labor. Liberals are, among other things, the Harvard sociologists, pro bono lawyers, and bearded guitarists of popular caricature.

But labor is something different than it is elsewhere. It is not only a collection of government employees, or the subset of liberals who don’t ride in limousines. There are also still credible (or sort of credible) representatives of the industrial working class. They hold a kind of job that has been kept on life support by the Big Dig, the largest highway project in the history of the country, at least if you measure it in dollars. Ted Kennedy won the Big Dig for metropolitan Boston in the late 1980s, and the money is only now running out. The leaders of the AFL-CIO and the Building Trades are clamoring for the jobs spigot to be turned back on. They are the loudest supporters of racinos, because DeLeo has convinced them that racinos are all the spigot they’re going to get.

There are two things about this explanation, though, that make no sense. The first is that the spigot is on, isn’t it? What about the stimulus? True, many Massachusetts politicians complain that a shockingly disproportionate amount of the stimulus has been gobbled up by two nunchuck-shaped, gerrymandered congressional districts—the 3rd, which links Worcester to Fall River and is represented in Congress by Jim McGovern, who sits on the Budget Committee; and the 4th, Barney Frank’s district, which connects liberal Brookline and Newton with working class New Bedford. Still, Massachusetts has received at least $5 billion out of the president’s stimulus, which ought to be more than the racinos will produce.

The second thing that needs explaining is this: If Patrick’s challenge lies in balancing liberal and labor interests, then surely it is the latter that he has to shore up. Charlie Baker, his Republican challenger for governor in November, is running only 6 points behind him, considerably closer than Scott Brown was a month before he demolished Martha Coakley in the special election for Ted Kennedy’s Senate seat last January. “Had enough?” is Baker’s motto. It seems aimed at wooing the working class voters who followed behind Brown’s pickup truck last winter, not at breaking Patrick’s hold on the coffeehouses of Cambridge.

The best explanation for why gambling failed despite all the votes in favor of it, is that the Democrats in the state house needed gambling to fail and they needed to vote in favor of it.

They needed to be on-record as supporting mega-casinos because Patrick has turned the gambling industry into a lifeline of campaign funding for his allies. Slot machine companies, scratch card companies, racetrack developers, and others are among the biggest contributors to Massachusetts politicians. The companies contribute themselves, they hire lobbyists who contribute, and their employees contribute as individuals. In April the Boston Globe reported that the New Jersey-based consulting firm that the state paid to come up with the financial estimates for gambling also was being paid by DeLeo’s campaign.

At the same time, Patrick, DeLeo, and their allies need gambling to fail because gambling is terrible public policy. Promises of huge revenue streams always accompany its introduction, but these are easily enough debunked in theory, and other states have failed to realize them in practice. A magnificent piece of economic digging was done by the Bentley University economist John Edward in the Lowell Sun, the paper that has done the hardest-hitting analysis of the gambling controversy. Lowell, maybe because it is only three miles from the New Hampshire border, has a keener eye on the larger New England economy. Edward noted that when New Hampshire did a cost-benefit analysis of opening one casino near Massachusetts, they estimated it would create $110 million, and possibly as much as $220 million, in negative social externalities. As drafted, the Massachusetts bill, which would create five mega-casinos not near but in the state, budgeted $28 million to cover the same negative effects.

And almost every other index we have of the benefits of the gambling industry has worsened in a climate of economic downturn. The strongest argument for state-sponsored gambling back in 2008 involved interstate competition. Connecticut’s Foxwoods and Mohegan Sun casinos, both owned by recently invented Indian tribes, are only a hundred miles from Boston, and they suck tens of millions of dollars out of Massachusetts every year. But gambling has proved highly susceptible to economic conditions (why shouldn’t it?), and it was recently reported that the Mashantucket Pequot Tribal Nation was trying to renegotiate $2 billion worth of debt and was angling to get its largely Malaysian lenders to take a haircut.

In the more recent version of the gambling bill, tax revenues, not leakage to other states’ casinos, have dominated discussion, but this argument, too, is weaker in an age of financial crisis and big deficits. Gambling is, as everyone realizes, a tax on the poor. This is true even where the state uses private companies as tax farmers, the way Governor Patrick has intended to. In an economy like the present one, if you hike taxes on the poor through a levy on their paychecks, you get accused of troglodytic, pre-Keynesian economic thinking. Why does taxing the poor suddenly turn into stimulus if you do it in an atmosphere of ringing fruit machines, rolling dice, disco balls, and hookers?

Here is where the story line may diverge most radically from that of Obama and health care. It is significant that the debate in both the senate and the house—with hundreds of millions of dollars in state contracts at stake and years of legislative work in the balance—took only a few minutes, as if the vote had not been that important. Maybe Patrick and DeLeo realize that the reason they lost public opinion over gambling two years ago is that they lost the argument over gambling. But as long as gambling interests don’t realize that, there will still be good money in it for politicians.